Ideally, one would like to compare directly the price of goods in two countries to see if an exchange rate conforms to absolute PPP, or whether it is overvalued or undervalued in real terms. As mentioned in Chapter 2, this can only be done for some individual goods that are clearly comparable (“law of one price”), and the estimation for different goods can lead to opposing conclusions. In Chapter 2, we provide an analysis based on the well-known Big Mac report of The Economist. Of course, the Bi